Sunday, August 23, 2015

If you define capitalism as the interaction of individuals with a market economy, the system is advancing, not retreating. New-economy websites such as Airbnb and Etsy allow people to earn money in new ways—renting out their homes while they are on holiday, or selling arts and crafts. In the past, homeowners might have struggled to find renters and hobbyists to find buyers; aggregator websites make the task much easier.

It is true that some of these new websites undermine existing business models, just as file-sharing wrecked music-publishing companies. But investors expect most of these companies to be profitable eventually, judging by the valuations they attract. Google started as a free internet-search business but has found a way to monetise its reach. The move from an economy based on physical goods to one based on software and intellectual property seems to be allowing higher returns on capital than before. The internet has been in wide use for 20 years or so, and corporate profits are close to a post-war high as a proportion of American GDP.

By reducing the cost of information, the internet kills some business models. But not all. New models will appear and people will always be willing to pay for products that convey status, whether luxury watches or fast cars or branded clothing. They can stream music for nothing, but people will spend vast sums to hear rock bands play live.

Another new-economy effect is that the old idea of lifetime employment is fading. More people will follow “portfolio careers”, switching from one employer, or even industry, to another as the economy changes. This will require them not just to learn new skills as they age, but to monitor the economy for new opportunities.

Many more people are likely to be self-employed, offering services to a wide range of customers. In a sense, they will be artisans, not employees. Activities such as sales, marketing and accounting—matters that salaried employees leave in the hands of specialist colleagues—will become the responsibility of the individual. Such workers will have to be more, not less, sensitive to the market economy than the typical office drone.

And then there are pensions. Two decades ago, many workers could rely on a paternalistic system under which companies provided a retirement income linked to their final salary. New private-sector workers merely build up a savings pot, which they must use to see them through their retirement years as best they can.